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• Historical Cost: Capital assets are typically recorded at their historical cost, which includes the purchase price and any costs incurred to bring the asset to its intended use (e.g., freight, installation). Donated assets are recorded at their fair market value at the time of receipt.
• Capitalization Thresholds: Governments establish capitalization thresholds, meaning only assets exceeding a certain cost and having a useful life of more than one year are recognized as capital assets. Lower-cost items are usually expensed.
• Infrastructure Reporting: GASB 34 introduced specific requirements for reporting infrastructure assets. Governments can choose to depreciate these assets or use the “modified approach” if they can demonstrate that the assets are being maintained at a specified condition level.
• Collections: Certain collections of works of art, historical treasures, and similar assets are not required to be capitalized if they meet specific criteria (e.g., held for public exhibition, education, or research and are protected and preserved).

Example (Government):

A county government purchases a new fire truck for KSH 5,000,000 with an estimated useful life of 10 years.

• Initial Recording: The fire truck would be recorded as a capital asset (equipment) on the government-wide Statement of Net Position at KSH 5,000,000.
• Depreciation: Each year, KSH 500,000 (KSH 5,000,000 / 10 years) in depreciation expense would be recognized in the government-wide Statement of Activities. The accumulated depreciation would also be reported on the Statement of Net Position, reducing the book value of the fire truck over time.

Not-for-Profit Organizations:

Accounting for capital assets in not-for-profit organizations is guided by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC), primarily ASC 958-360, Property, Plant, and Equipment. Key aspects include:

• Statement of Financial Position: Not-for-profit organizations report capital assets on their Statement of Financial Position (similar to a balance sheet).
• Historical Cost: Capital assets are generally recorded at their historical cost. Contributed capital assets are recorded at their fair value on the date of donation.
• Depreciation: With limited exceptions, not-for-profit organizations depreciate their capital assets with a limited useful life over that life in a systematic and rational manner. Depreciation expense is recognized in the Statement of Activities.
• Capitalization Policies: Similar to governments, not-for-profits typically establish capitalization policies that define the minimum cost and useful life for an asset to be capitalized.
• Collections: Not-for-profit organizations have specific guidance for accounting for collections of works of art, historical treasures, and similar assets. If a collection meets certain criteria (e.g., held for public exhibition, education, or research and is preserved and cared for), the organization has the option not to capitalize them. However, if capitalized, they are not depreciated if their economic benefit or service potential is used up so slowly that their estimated useful lives are extraordinarily long. ¹  
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Example (Not-for-Profit):

A charitable hospital (a not-for-profit organization) receives a donation of new medical equipment with a fair value of KSH 2,000,000 on the date of donation. The equipment has an estimated useful life of 5 years.

• Initial Recording: The medical equipment would be recorded as a capital asset on the Statement of Financial Position at its fair value of KSH 2,000,000, with a corresponding increase in net assets (specifically, net assets without donor restrictions unless the donor stipulated a specific use or time restriction).
• Depreciation: Each year, KSH 400,000 (KSH 2,000,000 / 5 years) in depreciation expense would be recognized in the Statement of Activities, reducing the organization’s net assets. The accumulated depreciation would also be reflected on the Statement of Financial Position, decreasing the book value of the equipment.

In summary, while both government and not-for-profit organizations account for capital assets as significant long-term investments, the specific reporting requirements and the emphasis on government-wide reporting (for governments) and net asset classifications (for not-for-profits) reflect their fundamental differences in objectives and stakeholder needs. Both frameworks prioritize transparency and accountability in the management and reporting of these crucial resources.